Thieves among Angels - Kevin

All too often we hear news that someone has been caught stealing from their employer. Such instances are not limited to the for-profit and government sectors. Unfortunately, thefts from nonprofit organizations are just as common. From board members of volunteer fire departments to executive directors of large advocacy agencies, these inconceivable acts span the entire spectrum of this very vulnerable third sector. Compounding the victimization of these crimes is the inherent populations that nonprofits serve and the donative methods by which they acquire revenue. In order to determine the extent of these deplorable acts, researchers consulted a report produced by the Association of Certified Fraud Examiners (ACFE). In its 2005 Report to the Nation on Occupational Fraud and Abuse, the ACFE divulged that 12% of the 508 cases of occupational fraud examined involved nonprofit organizations (Greenlee et. al., 2007, p. 1). The severity of this problem is extensive, costing nonprofits millions of dollars each year. In order to prevent such acts, nonprofits must understand the reasons for their vulnerability. Only then can procedures be implemented to relieve the charitable sector of fraud.

The very characteristics of nonprofits that differentiate them from the for-profit and government sectors facilitate the ease for which fraudulent acts can occur. First, there exists a high level of trust among those affiliated with nonprofit organizations. (Devaney and Tenenbaum, 2010, p. 1). Employees and volunteers are viewed as being compassionate, trust worthy, and dependable people. The mere fact that they unselfishly devote their time to the organization without the expectation of compensation; or, for compensation that is substantially less than comparable positions within for-profit organizations, suggests that they are incapable of victimizing the organization. Second, persons responsible for the financial duties of nonprofit organizations usually hold those positions for extended periods of time, usually many years. Third, nonprofits usually have less stringent or no methods of financial controls in place.

By implementing fraud detection and protection measures, nonprofits can prudently limit their losses. However, nonprofits must first acknowledge that problems exist. According to the ACFE report, “fraud losses in the 58 nonprofit cases ranged from a low of $200 to a high of $17 million, with a median loss of $100,000.” Of the 58 nonprofits, the ACFE reported that four organizations had losses of more than $1 million (Greenlee et. al., 2007, p.2).

Nonprofits must be proactive in their defense of employee theft. While the following measures may seem rudimentary, they can be extremely effective in the prevention of asset misappropriations. Perhaps most importantly, all cash disbursements must be accompanied by two signatures. Policies should also include requirements that all transactions be accompanied by an invoice. The practice of pre-signing checks should be prohibited. The use of credit cards should also be closely regulated and written permission should accompany all costs which exceed a predetermined amount.

Nonprofit organizations must implement practices which segregate the various financial duties. For example, different employees should be responsible for authorizing payments, disbursing funds, and reconciling bank statements and reviewing credit card statements. Smaller nonprofit organizations may find it difficult to segregate duties due to a lack of staff. Therefore, dependence on volunteers to perform some of these tasks may be necessary. As theft can also occur with funds that the nonprofit has coming in, those duties associated with receivable revenues must also be segregated. At no time should a single individual should be responsible for receiving, depositing, recording, and reconciling the receipt of funds (Devaney and Tenenbaum, 2010, p. 2). Finally, background checks can provide valuable information concerning an employee’s criminal records, prior instances of fraud and heavy debt loads. Any prospective employee whose background check divulges such negativities should not be considered for positions responsible for financial duties.

Theft from nonprofit organizations will never cease to occur as there will always be the temptation for dishonest board members and staff to steal. However, nonprofit organizations can implement protective measures which will greatly reduce their vulnerability to such acts. Where theft cannot be eliminated, these measures will reduce the losses incurred by organizations.

References:

Greenlee, Janet, Mary Fischer, Teresa Gordon, and Elizabeth Keating. “How to Steal from a Nonprofit: Who Does It and How to Prevent It.” The Nonprofit Quarterly. (2007). Web. www.nonprofitquarterly.org

Devaney, William and Jeffrey Tenenbaum. “Preventing Embezzlement inYour Nonprofit Organization.” Journal for Nonprofit Management. VOL14. (2010). Web. www.supportcenteronline.org